This Week in Telecom Innovation: Thinking Like a Carrier

Around the world, content and platform providers have been investing billions of dollars in next-generation technologies in a quest to become the one-stop-shop for our everyday communications needs. However, as these providers integrate services like voice and video into their applications, they begin to look increasingly like the telecom carriers of old.

At the same time, traditional carriers – feeling pressure from their upstart rivals – have responded with their own integrated offerings. As a consequence, the line between carrier and application has blurred, raising significant regulatory implications that legislators and agencies will need to address.

One of the more significant developments in the rise of the app economy is the unbundling of messaging from large integrated social networks. Of course, this has happened before: America Online spun the Instant Messenger (or AIM) client out of its online service in 1997. Over the last few years, stand-alone messaging services have been breaking through the walled garden once again – this time in response to the rise of massive social networks like Facebook, and as a means to avoid wireless carriers’ SMS pricing. However, as messaging applications reach staggering scale – counting hundreds of millions of active users and billions of messages each day – these over-the-top (“OTT”) providers are now beginning to swim upstream: seeking to become dynamic, aggregated communications platforms like their forbearers. (Benedict Evans, a partner at Andreessen Horowitz, has written about thisphenomenonextensively.)

For example, WhatsApp, the messaging app that Facebook purchased for $19 billion, recently announced that it will begin to provide voice services through its application. In addition, it has just launched a partnership with e-Plus, a German carrier, to develop a Mobile Virtual Network Operator (“MVNO”) brand. As an MVNO, WhatsApp will be able to provide its users with unlimited access to WhatsApp outside of their data plans. But WhatsApp is not the only provider attempting to “carrier-ize” its messaging service. OTT messaging apps TextNow and UppTalk have both recently launched their own MVNOs to provide all-IP voice and text services to their users.

In addition to messaging apps, other non-traditional players are seeking to provide carrier-like services to customers. For instance, a number of content and cable providers have been trending that way as well. Google, which provides OTT messaging and video through its Hangouts product, is rumored to be exploring an MVNO option to supplement its fiber-to-the-home Google Fiber service. Likewise, Comcast is also considering an MVNO play in conjunction with its extensive network of Wi-Fi hotspots. However, given that the cable industry’s last foray into the cellular market resulted in significant wound-licking and soul-searching, it’s unlikely that these providers are seeking to compete head-on with the big-four cellular carriers. Rather, the cellular service that they resell likely will serve as a failover in the event that Wi-Fi isn’t available (leading some to call them “Wi-Fi First” offerings). This mirrors the trend of a number of new MVNOs, like Ting and Republic Wireless, which provide deeply discounted voice and data plans that rely heavily on Wi-Fi for service.

Finally, the growing popularity of the app-supported communications technologies has not gone unnoticed by traditional telecommunications carriers. In response to the rise of IP-enabled voice and text, many carriers have begun to partner with, purchase, or provide their own OTT messaging solutions. For example, in February, Japanese carrier Rakuten purchased popular messaging app Viber for $900 million. Similarly, Telefonica has partnered with messaging app Line to increase its presence in Latin American markets. Finally, carriers have offered their own solutions – from Sprint’s Messaging Plus to the GSMA’s joyn – using Rich Communications Services. And while these developments have mostly focused on products and partnerships outside of the United States, the growth of OTT communications services may place similar pressure on U.S. carriers to partner up with messaging platforms here in the States.

The trend of applications providers offering increasingly carrier-like services raises significant regulatory implications in the United States. At present, any messaging platform that chooses to become an MVNO and offer voice service must abide by federal and state regulatory obligations. However, other messaging applications that do not include a traditional voice or interconnected VoIP option are currently classified as unregulated “information services.” Nevertheless, as messaging platforms begin to look more and more like common carriers, Congress may determine that regulation is necessary to protect consumers (as it did when it extended its disabilities access regulations to “advanced communications services,” including messaging apps). This means that messaging apps that are looking to expand their service portfolio into traditional regulated areas, like voice and video, should remain mindful of both existing regulatory obligations and the prospect of more regulation in the future. In other words, these new providers should start to “think like a carrier.”